Farren and Alvey (Child support)

[2017] AATA 2953

Farren and Alvey (Child support) [2017] AATA 2953 (7 December 2017)

DIVISION:Social Services & Child Support Division

REVIEW NUMBER:  2017/SC011557

APPLICANT:  Mr Farren

OTHER PARTIES:  Child Support Registrar

Ms Alvey

TRIBUNAL:Member K Timbs

DECISION DATE:  7 December 2017

DECISION:

The Tribunal sets aside the decision under review. It substitutes the decision to make the following determinations to depart from the administrative assessment of child support:

·    The parties’ adjusted taxable incomes are varied to:

­$74,000 for Mr Farren from 1 October 2016 to 30 June 2017; and

­two thirds of the annualised male taxable average weekly earnings for Ms Alvey from 1 November 2016 to 31 December 2018.

·    The annual rate of child support is increased by:

­$1,150 from 1 October 2016 and

­$1,200 for the 2017 and 2018 calendar years.

·    Earlier determinations to increase the annual rate of child support do not apply from 1 October 2016.

CATCHWORDS

Child Support – Departure determination – Income and financial resources of parents – Business income – Costs of education – Decision under review set aside and substituted

Names used in all published decisions are pseudonyms. Any references appearing in square brackets indicate that information has been removed from this decision and replaced with generic information so as not to identify involved individuals as required by subsections 16(2AB)-16(2AC) of the Child Support (Registration and Collection) Act 1988.

REASONS FOR DECISION

BACKGROUND

Child support assessments

1. Mr Farren and Ms Alvey are the parents of [Child 1] (born 2009) and [Child 2] (born 2013). At relevant times, Mr Farren is the parent liable to pay child support under child support assessments made by the Department of Human Services for the Child Support Registrar.

2. From 1 December 2015, the Department used adjusted taxable incomes of $68,884 for Mr Farren and $81,000 for Ms Alvey. The annual rate of child support was $6,428. Mr Farren’s adjusted taxable income was equal to his 2015 taxable income and a delegate of the Registrar had decided to depart from the administrative assessment of child support (change of assessment) and determined Ms Alvey’s adjusted taxable income until 31 October 2017. The delegate also increased the annual rate of child support by $1,802 until 28 February 2017.

3. From 1 October 2016, the Department used an adjusted taxable income equal to his 2016 taxable income of $61,710 for Mr Farren and the annual rate was $5,220.

4. From 1 November 2016, the annual rate increased to $8,708 because the determination of Ms Alvey’s adjusted taxable income ended and the Department used a “provisional” taxable income of $17,325.

5. From 1 March 2017, the annual rate reduced to $6,906 because the determination to increase the annual rate ended.  

6. If not for the decisions discussed below, the annual rate of child support would have reduced to approximately $3,500 from 1 July 2017 because Mr Farren elected to estimate his adjusted taxable income for the 2017 financial year to be $43,070.

Change of assessment

1. On 19 September 2016, Mr Farren applied for a change to the assessment. When notified of the application, Ms Alvey made a cross-application.

2. On 17 January 2017, a delegate of the Registrar accepted the application and made determinations to increase the annual rate of child support. On 7 April 2017, an Objections Officer of the Department allowed Mr Farren’s objection to that decision and decided to increase the annual rate of child support by $1,733 from 1 March 2017 to 28 February 2018.

Application for review

1. On 24 April 2017, Mr Farren applied for review of that decision. The Tribunal heard the application for review on 8 December 2017.

ISSUES

1. The relevant law is the Child Support (Assessment) Act 1989 (the Act). It requires the Registrar to calculate the annual rate of child support for child support periods.

2. Either parent may apply to change the formula assessment (section 98B). The Registrar may change the assessment if the case meets the following three criteria (section 98C):

   ·There is a ground for changing the assessment. (Section 117(2) of the Act lists the 12 grounds).

   ·It is “just and equitable” to make particular changes to the assessment.

   ·It is “otherwise proper” to make those changes to the assessment.

3. To make a decision on Mr Farren’s application for review, the Tribunal considered whether the case meets those three criteria.

CONSIDERATION

Evidence considered

1. The Tribunal considered documents relevant to the decision under review provided by the Department and from Mr Farren and Ms Alvey. Both parties gave evidence at hearing.

Issue 1 – Is there a ground to change the assessment?

1. The first step is to decide if there is a ground for changing the assessment. Ms Tracey applied for a change of assessment on the ground in section 117(2)(b)(ii) that:

   …in the special circumstances of the case, the costs of maintaining the child are significantly affected…because the child is being…educated…in the manner that was expected by his or her parents…

2. [Child 1] attends a Catholic primary school at a cost of approximately $2,300 for 2016 ($1,487 tuition fees + $803 building and maintenance levy) and $2,400 for 2017 ($1,535 + $875). The Tribunal is satisfied that this takes the case out of the usual run of cases where children attend public schools and that the expense significantly increases the cost of maintaining her.  It follows that the ground applies if both parties expected [Child 1] to be educated in that manner.

3. On 19 August 2016, Mr Farren made a written statement to the Department which included the following:

   When the children’s mother and I were married and living together, we made a decision about the type of schooling our children would attend based on our circumstances at the time. The decision was to send them to a Catholic School.

4. At hearing, Mr Farren did not dispute that was the case but claimed the ground did not apply because after separation he told Ms Alvey he no longer expected the children to be privately educated. However, the words “was expected” in section 117(2)(b)(ii) are in the past tense and the Tribunal is satisfied on his evidence that, before their separation, Mr Farren and Ms Alvey both expected [Child 1] to attend the type of school that she is currently attending. It is not relevant that he later resiled from his stated expectation. It follows there is a ground to change the assessment.

5. Having found there is a ground to change the assessment, it is not necessary to consider whether the other grounds raised by the parties in the change of assessment applications also apply.

Issue 2 – Is it just and equitable to change the assessment?       

1. The next step is to consider whether it is just and equitable (fair) to make particular changes to the assessment. To do this, the Tribunal considered relevant matters listed under the headings below (as required by section 117(4)) which include the matters raised as grounds to change the assessment by the parties.

2. The Tribunal also had regard to the following objects of the Act in section 4:

   ·The primary object of the Act is to ensure that children receive a proper level of support from their parents.

   ·It is a particular object of the Act to ensure the level of financial support provided by parents is determined according to their capacity to provide that support and, in particular, that parents with a similar capacity to support their children provide similar levels of support.

Duty to support the children

1. Parents have a primary duty to support their children that has a higher priority than any other commitment except commitments they must meet to support themselves or other persons they have a legal duty to support (section 3 of the Act). The parties have no other children and there is no other person they have a duty to support.

Income, financial resources, property and earning capacity of the children and the parents

The children

1. The children have no income, property, financial resources or earning capacity. They rely on their parents to meet their proper needs.

Mr Farren

1. Mr Farren worked as [an occupation] until March 2017 when his employer terminated his employment because he could not perform the full range of duties because of an [accident]. He received workers compensation at 100% of his ordinary time earnings for the rest of the 2017 and had gross income of approximately $75,000 with deductions of approximately $4,500. His 2017 taxable income was $71,000.

2. The Tribunal finds that approximately $500 of those deductions were genuine expenses (including the cost of his [professional] licence, his union fees and the cost of his accountant preparing his tax return). The Tribunal suggested the remaining $4,000 (made up largely of expenses for use of his mobile phone, home computer and a home office) are not related to his [work]. Mr Farren claimed that those expenses were necessary because he was a union representative and he insisted that claims of 90% of his mobile phone and Internet usage for that purpose were genuine. The Tribunal finds those claims to be so unlikely that they affect Mr Farren’s general credibility. It finds the claims are largely inflated or entirely false and that, after genuine work related deductions, he had taxable income of approximately $74,000.

3. From 1 July 2017, Mr Farren’s workers compensation payments reduced to a gross amount of $864 per week or approximately $45,000 a year. The Tribunal is satisfied that is roughly commensurate with his estimated adjusted taxable incomes from that date (and notes it will be reconciled when the ATO assesses his 2018 taxable income). He advised the Tribunal that he had no other source of income and no access to financial resources. There is no evidence to the contrary and the Tribunal accepts that is the case.

4. Mr Farren lists his only significant assets as superannuation (which he is unable to access) and a car (that is subject to a lengthy lease). The Tribunal accepts that evidence and finds he has no assets that provide him with capacity to support the children.

5. Section 117(7B) provides that the Tribunal (in place of the Registrar) may not make a finding that a parent’s earning capacity is greater than their income unless they satisfy three earning capacity tests. The first test requires that the parent has made a decision that leads to reduced earning capacity such as not working despite ample opportunity or reducing their hours or changing their occupation. In this case, his employer terminated his employment and the workers’ compensation insurer decided to reduce Mr Farren’s weekly payment. He did not make a decision to stop working and there is no evidence (such as labour market analyses) to demonstrate that there is ample work available to Mr Farren if he made greater efforts to find work. He does not meet the first working capacity test and the Tribunal may not find that his earning capacity is greater than his income.

Ms Alvey

1. Until she resigned in July 2015, Ms Alvey worked fulltime in [a] section of [Company 1]. Her evidence is that her only income since leaving that employment are payments from Centrelink and income from a business she has set up called [Business 1].

2. In the 2017 financial year, [Child 2] attended childcare five days per week and Ms Alvey told the Tribunal she worked three to four days per week for $25 per hour. Nevertheless, the financial statements of the business show gross income of approximately $14,000. That is approximately $270 a week for about 10 hours per week.

3. In 2017, the business made a profit of approximately $3,900. Ms Alvey said it was in a similar position in 2016 and that it will earn less in 2018 because she bought equipment and products to provide [other business] services. The Tribunal noted that, if the accounts are correct, Ms Alvey was earning no more than $75 per week before paying approximately $40 a week for child care for [Child 2]. The Tribunal suggested that was unlikely and noted that [workers in that industry] are often paid in cash. It suggested that she did not declare all her income.

4. Ms Alvey denied that was the case and said she “tells everyone to pay me by EFT”. The Tribunal asked why she would work for three to four days per week for such a small amount of money and she said it was worth her while because the business paid for personal expenses, such as her telephone, computer and motor vehicle. That might be the case but it is only a benefit if she falsely claims more than is necessary to carry on the business. In any event, Ms Alvey would still be working for a nominal amount if the Tribunal were to add the amounts claimed in the profit and loss statements for expenses of that kind.

5. The Tribunal does not accept Ms Alvey has worked for a nominal income over the last two years or that she intends to do so indefinitely. It infers it is worth her while to operate the business because it provides her with undeclared cash income. It is not possible to determine Ms Alvey’s income with any accuracy for any relevant period. However, the courts have said that it is appropriate to make adverse findings where a party has not fully and frankly disclosed their financial circumstances to the Tribunal.

6. Section 58 of the Act provides that, where there is insufficient information to determine an adjusted taxable income for a child support period, the Registrar may determine the parent’s adjusted taxable income to be at least two-thirds of annualised Male Total Average Weekly Earnings (2/3 MTAWE), which is presently $48,308. The Tribunal is unable to determine the cash income earned by Ms Alvey and, taking the administrative process as a guide, it finds that it would be unfair to Mr Farren to find that her income was less than 2/3 MTAWE at any time relevant to the this decision.  

7. Ms Alvey earned approximately $80,000 a year working in [a certain industry]. However, she had to travel for several hours each day to work [and] she is the primary carer for the children. The Tribunal is satisfied that, after separation from Mr Farren, she could not manage the travel and her care of the children. In that case, it is satisfied resignation was justified by her caring responsibilities for the children. In that case, she does not meet the second earning capacity test in section 117(7B)(b) and the Tribunal may not find that her earning capacity is greater than her income because of her resignation from that employment.

Proposed determinations

1. In the usual case, the adjusted taxable incomes used to calculate child support are equal to the taxable incomes and supplementary amounts for the parents for the financial year that ended before the start of a child support period.  The first step in the formula assessment is to determine the costs of the children according to their ages and the combined income of the parents (less self-support amounts) using the Costs of the Children Table in Schedule 1 of the Act. The Table recognises that parents spend more to support older children and that parents with higher children spend more to support them.

2. The next step is to divide the cost of the children between the parents according to their share of the combined income unless they have adjusted taxable incomes above a self-support amount. Parents with adjusted taxable incomes below the self-support amount are taken to have no capacity to support their children.

3. The annual rate of child support will be equal to the parent’s share of the costs of the children if they have care percentages of less than 14%. Otherwise, the annual rate reduces to take account of the costs the parent meets while the children are in their care.

4. It follows that, if adjusted taxable incomes are not commensurate with actual incomes, that the annual rate will not result in a proper amount of support for the children that is similar to others in similar circumstances. In this case, in particular, Ms Alvey’s adjusted taxable income is less than the self-support amount from 1 November 2016 and the annual rate of child support is calculated on the basis that she has no capacity to support the children from that date. To ensure that both parents contribute to the support of the children in accordance with their capacity, the Tribunal change the assessment so that:

   ·    Mr Farren’s adjusted taxable income is $74,000 from 1 October 2016 to 30 June 2017, and

   ·    Ms Alvey’s adjusted taxable income is equal to 2/3 MTAWE from 1 November 2016 until 31 December 2018.

5. The Tribunal proposes to start the determination of Mr Farren’s adjusted taxable income in the month after the parties made their change of assessment applications and to continue the determination of Ms Alvey’s adjusted taxable income for a lengthy period to provide some certainty to the parties.

6. The outcome of those changes would be to increase the annual rate calculated according to the formula by about $1000 from 1 November 2016 and decrease it by about $1000 from 1 July 2017. 

Proper needs of the children

Usual costs

1. If the Tribunal made the proposed determinations, the costs of the children (under the Table) would increase to approximately $16,000 from 1 November 2016 with Mr Farren liable to meet approximately 70% of those costs. From 1 July 2017, the costs would be approximately $9,000 with both parents required to meet approximately half of those costs. (Mr Farren has care percentages of at least 14% and the annual rate is less than his share of the costs of the children because he meets some of their proper needs when they are in his care.) The Tribunal is satisfied that the costs determined under the formula are appropriate to meet their proper needs.

2. The Tribunal finds these amounts are appropriate to meet the children’s usual expenses taking account of Mr Farren’s changed circumstances.

Education and child care costs

1. The proper needs of the children include the cost of educating the children in the manner expected by the parents (section 117(6)). Mr Farren told the Tribunal that he told Ms Alvey that the cost was unaffordable after their separation and before [Child 1] started school. He submits that it is not fair to increase the annual rate to take account of those costs for that reason. Mr Farren made similar submissions to the Department before his income reduced in July 2017. However, when the Tribunal asked him why he had entered into a relatively expensive lease for his car in early 2016, he said that he could afford it at that time. The Tribunal finds that submission is inconsistent with his submissions about the affordability of [Child 1]’s education costs because there is a significant discretionary element to the decision to lease the car and it costs significantly more than the cost of educating [Child 1]. Having regard to the nature of his duty of support for [Child 1], the Tribunal agrees with Ms Alvey that the cost of her education has priority. It proposes to increase the annual rate so that he meets approximately 50% of the cost to ensure that Mr Farren contributes to that cost. That is, $1,150 from 1 October 2016 (which is the month after Mr Farren applied to change the assessment) and to $1,200 for the 2017 and 2018 calendar years. These determinations would replace the earlier determinations to increase the annual rate of child support that apply from November 2016 to February 2017.

2. The Tribunal notes Mr Farren has been paying an increased annual rate during the 2016 financial year and that Ms Alvey has not yet paid the school fees. She has a large debt as a result. Without evidence that the school would waive that debt, the Tribunal does not find it is not fair to increase the annual rate. However, if Ms Alvey does not pay off that debt and meet ongoing expenses, it would weigh against making any later changes to the assessment to take account of [Child 1]’s education costs or those of [Child 2] when he starts school in 2019.

1. The Tribunal also considered whether to increase the annual rate because Ms Alvey is meeting high costs of child care for [Child 2]. Under section 117(2B), Ms Alvey’s child care costs are considered high (for the purpose of determining whether there is a ground to change the assessment) if they are more than 5% of her adjusted taxable income during a child support period. Ms Alvey’s evidence is that she pays approximately $40 per week for family day care which is more than 5% of her adjusted taxable income if the formula assessment applies. However, the Tribunal has found Ms Alvey’s adjusted taxable income is not commensurate with her income and it could not determine her actual income with any accuracy because she did not fully and frankly disclose her financial circumstances. In the Tribunal’s view, it is not fair to Mr Farren to increase the annual rate to take account of child care costs for that reason.

Special needs

1. The proper needs of the children also include the cost of meeting any special needs. Ms Alvey gave evidence of special needs for both children and the Tribunal accepts they have been diagnosed with medical conditions and speech disorders. However, with one exception, treatment is free or inexpensive because Ms Alvey has a health care card for the children.

2. The exception is the cost of assessment and treatment of [Child 1] at [a health] Centre. The Tribunal takes into account the evidence from [Child 1]’s teacher that her literacy has improved since that assessment and treatment. However, the Centre does not provide recognised treatment by registered health practitioners. Rather, it provides alternative therapies that are not, or are not yet, generally recognised by medical practitioners.[1] The treatment might have helped [Child 1] but the improvement might also have come about because of a placebo effect or because [Child 1] had coincidentally met developmental milestones. Without recognition of the scientific basis for the treatment, the Tribunal is not satisfied it contributed to her improvement of that it was necessary to meet her special needs.

Necessary expenses/hardship

[1] For example, see the 2009 Joint Statement – Learning Disabilities, Dyslexia and Vision by the American Academy of Pediatrics Section on Ophthalmology, the Council on Children with Disabilities, the American Academy of Ophthalmology, the American Association for Pediatric Ophthalmology and Strabismus and the American Association of Certified Orthoptists at which states in relation to Irlen therapy (and other treatments) that “treatment approaches that lack scientific evidence of efficacy, including eye exercises, behavioral vision therapy, or special tinted filters or lenses, are not endorsed and should not be recommended”.

1. If the care percentages do not change and the Tribunal made all proposed determinations, the annual rate would be approximately $8,000 from 1 October 2016, $9,000 from 1 November 2016 and $3,600 from 1 July 2017. The Tribunal considered whether making, or not making, those determinations would cause hardship to the parties or to the children.

2. Mr Farren reported necessary weekly expenses $745 per week for himself and for the children when they are in his care. There are no expenses that are out of the ordinary apart from expenses discussed below for his car.

3. The list of expenses includes rent of $310 for accommodation he shares with his brother. He told the Tribunal his brother is staying with him temporarily and does not contribute to the rent. However, when pressed, he said his brother had been living with him for two years. The Tribunal infers it is an indefinite arrangement and does not accept his brother does not contribute to the rent. It finds he has modest expenses for accommodation of approximately $160 per week for himself and the children.

4. The expenses also include $165 per week to run his motor vehicle but they do not include $142.50 per week in lease payments. The combined expenses he reports for his car are therefore more than $15,000 a year. In the Tribunal’s experience, this is significantly above the usual costs reported by persons with average incomes to run a motor vehicle and it finds they are exaggerated and/or includes discretionary spending that does not have priority over the duty to support the children.

5. The Tribunal infers that, with careful budgeting, Mr Farren could meet necessary expenses for himself and the children (including a modest amount to own and operate a car) and pay the annual rate determined in accordance with the proposed determinations. He might not be able to meet the claimed expenses for a motor vehicle. However, the Tribunal does not find that making the determinations would cause him hardship because those expenses are inflated and/or discretionary.

6. Because the Tribunal cannot make accurate findings about Ms Alvey’s income, it cannot determine whether making, or not making, the proposed determinations would cause her hardship or cause hardship to the children while they are in her care.

Conclusion

1. In the Tribunal’s view, the proposed determinations ensure that both parents provide a proper amount of financial support for their children and that they contribute an appropriate amount to the cost of [Child 1]’s private education. It finds that making those determinations would further the relevant objects of the Act referred to above and are consistent with the parties’ duty of support for the children.

Issue 3 – Is it otherwise proper to change the assessment?

1. The final step is to decide whether it is otherwise proper to depart from the administrative assessment. To do this the Tribunal must consider the effect the determination will have on the cost to the community of supporting children through payment of family tax benefit. It must decide whether this is a proper outcome given parents have the primary responsibility to support their children.

2. Ms Alvey receives family tax benefit and the rate would reduce if the Tribunal makes the proposed determination. The Tribunal is satisfied that reflects the primary nature of the parties’ obligations of support and that making the proposed determination would be otherwise proper in that case.

Conclusion

1. The Tribunal has found there is a ground for changing the assessment and that it is just, equitable and otherwise proper to make the proposed determination. For those reasons, it sets aside the decision under review and substitutes the decision to make the proposed determination.

DECISION

The Tribunal sets aside the decision under review. It substitutes the decision to make the following determinations to depart from the administrative assessment of child support:

·    The parties’ adjusted taxable incomes are varied to:

­$74,000 for Mr Farren from 1 October 2016 to 30 June 2017; and

­two thirds of the annualised male taxable average weekly earnings for Ms Alvey from 1 November 2016 to 31 December 2018.

·    The annual rate of child support is increased by:

­$1,150 from 1 October 2016 and

­$1,200 for the 2017 and 2018 calendar years.

·    Earlier determinations to increase the annual rate of child support do not apply from 1 October 2016.